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Will the Departure of Starbucks CEO Pull These ETFs Down?
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Starbucks Corporation (SBUX - Free Report) , a leading coffee chain, was down 3.3% in after-market trading after it announced that CEO, Howard Schultz will step down from his position. Schultz will be succeeded by Kevin Johnson, the company’s current president and chief operating officer. The move will be effective from April 3, 2017.
The visionary leader of Starbucks steadily built the world’s largest coffee business, which now has more than 25,000 stores in 75 countries. The decision did not go down well with investors. It reminds one of April 6, 2000 when Schultz left the reins of Starbucks to focus on the company’s global strategy. At that time, the company’s shares fell a whopping 28% in a period of seven weeks. Amid challenges posed by the 2008 financial crisis, Schultz returned to the helm.
However, the fundamental strength of the company still remains strong. In the fiscal fourth quarter, not only did the company report better-than-expected earnings but also hiked its dividend by 25% to 25 cents a share. For fiscal 2017, Starbucks expects earnings per share to be in the range of $2.12 to $2.14 compared with the current Zacks Consensus Estimate of $2.13. The company expects consolidated revenues to grow in double digits and targets opening 2,100 net new stores globally. Comparable store sales are expected to grow in mid-single digits (read: ETFs to Watch on Starbucks' Upbeat Q4 Results).
The increasing use of Mobile Order and Pay could prove to be a key growth driver in the upcoming quarters. Additionally, factors including cheap fuel, better job prospects and increasing consumer confidence are likely to play an important role in boosting the restaurant industry, to which Starbucks belongs. Meanwhile, the president-elect has spread optimism in the economy and promised to accelerate growth, spend big time on infrastructure, reduce regulations, cut taxes and create more jobs in the country (read: 4 Reasons to Buy Retail ETFs This Holiday Season).
In this scenario, we have highlighted three consumer discretionary ETFs with a solid Zacks ETF Rank and a good exposure to Starbucks that are expected to remain on investors’ radar.
Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report)
This product offers exposure to the broad consumer discretionary space by tracking the Consumer Discretionary Select Sector Index. It is the largest and the most popular product in this space with AUM of nearly $10.9 billion and average daily volume of around 5.4 million shares. Holding 88 securities in its basket, Starbucks occupies the sixth position in the fund with 3.6% allocation. Media dominates about one-fourth of the portfolio while Internet and direct marketing retail, specialty retail, and hotels restaurants and leisure round off the next three spots with a double-digit allocation each. The fund charges 0.14% in expense ratio and has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating (read: Trump Effect Elevated These Sector ETFs to Rank #1).
This ETF provides targeted exposure to domestic consumer services stocks by tracking the Dow Jones U.S. Consumer Services Index. It holds 184 stocks in its basket with Starbucks occupying the seventh position in the fund with 2.9% allocation. In terms of industrial exposure, retailing makes up the largest share with 37.8%, followed by media (23.4%), consumer services (15.5%), and foods & staples retailing (14%). The fund has amassed $837.9 million in its asset base and trades in a small volume of 39,000 shares a day on an average. It charges 44 bps in annual fees from investors and has a Zacks ETF Rank of 3 or ‘Hold’ rating.
Fidelity MSCI Consumer Discretionary Index ETF (FDIS - Free Report)
This fund tracks the MSCI USA IMI Consumer Discretionary Index, holding 377 stocks in its basket. Out of these, SBUX takes the sixth spot with 2.9% share. Media makes up for the top sector with 24% share, followed by specialty retail (19%), internet & direct marketing retail (15.9%), and hotels restaurants & leisure (15.8%). The product has amassed $227.6 million in its asset base and trades in a good volume of around 86,000 shares a day on average. It charges 0.084% in annual fees from investors and has a Zacks ETF Rank of 1 (read: A Spread of Top-Ranked ETFs for Thanksgiving and After).
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Will the Departure of Starbucks CEO Pull These ETFs Down?
Starbucks Corporation (SBUX - Free Report) , a leading coffee chain, was down 3.3% in after-market trading after it announced that CEO, Howard Schultz will step down from his position. Schultz will be succeeded by Kevin Johnson, the company’s current president and chief operating officer. The move will be effective from April 3, 2017.
The visionary leader of Starbucks steadily built the world’s largest coffee business, which now has more than 25,000 stores in 75 countries. The decision did not go down well with investors. It reminds one of April 6, 2000 when Schultz left the reins of Starbucks to focus on the company’s global strategy. At that time, the company’s shares fell a whopping 28% in a period of seven weeks. Amid challenges posed by the 2008 financial crisis, Schultz returned to the helm.
However, the fundamental strength of the company still remains strong. In the fiscal fourth quarter, not only did the company report better-than-expected earnings but also hiked its dividend by 25% to 25 cents a share. For fiscal 2017, Starbucks expects earnings per share to be in the range of $2.12 to $2.14 compared with the current Zacks Consensus Estimate of $2.13. The company expects consolidated revenues to grow in double digits and targets opening 2,100 net new stores globally. Comparable store sales are expected to grow in mid-single digits (read: ETFs to Watch on Starbucks' Upbeat Q4 Results).
The increasing use of Mobile Order and Pay could prove to be a key growth driver in the upcoming quarters. Additionally, factors including cheap fuel, better job prospects and increasing consumer confidence are likely to play an important role in boosting the restaurant industry, to which Starbucks belongs. Meanwhile, the president-elect has spread optimism in the economy and promised to accelerate growth, spend big time on infrastructure, reduce regulations, cut taxes and create more jobs in the country (read: 4 Reasons to Buy Retail ETFs This Holiday Season).
In this scenario, we have highlighted three consumer discretionary ETFs with a solid Zacks ETF Rank and a good exposure to Starbucks that are expected to remain on investors’ radar.
Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report)
This product offers exposure to the broad consumer discretionary space by tracking the Consumer Discretionary Select Sector Index. It is the largest and the most popular product in this space with AUM of nearly $10.9 billion and average daily volume of around 5.4 million shares. Holding 88 securities in its basket, Starbucks occupies the sixth position in the fund with 3.6% allocation. Media dominates about one-fourth of the portfolio while Internet and direct marketing retail, specialty retail, and hotels restaurants and leisure round off the next three spots with a double-digit allocation each. The fund charges 0.14% in expense ratio and has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating (read: Trump Effect Elevated These Sector ETFs to Rank #1).
iShares U.S. Consumer Services ETF (IYC - Free Report)
This ETF provides targeted exposure to domestic consumer services stocks by tracking the Dow Jones U.S. Consumer Services Index. It holds 184 stocks in its basket with Starbucks occupying the seventh position in the fund with 2.9% allocation. In terms of industrial exposure, retailing makes up the largest share with 37.8%, followed by media (23.4%), consumer services (15.5%), and foods & staples retailing (14%). The fund has amassed $837.9 million in its asset base and trades in a small volume of 39,000 shares a day on an average. It charges 44 bps in annual fees from investors and has a Zacks ETF Rank of 3 or ‘Hold’ rating.
Fidelity MSCI Consumer Discretionary Index ETF (FDIS - Free Report)
This fund tracks the MSCI USA IMI Consumer Discretionary Index, holding 377 stocks in its basket. Out of these, SBUX takes the sixth spot with 2.9% share. Media makes up for the top sector with 24% share, followed by specialty retail (19%), internet & direct marketing retail (15.9%), and hotels restaurants & leisure (15.8%). The product has amassed $227.6 million in its asset base and trades in a good volume of around 86,000 shares a day on average. It charges 0.084% in annual fees from investors and has a Zacks ETF Rank of 1 (read: A Spread of Top-Ranked ETFs for Thanksgiving and After).
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>